Clouds gather over euro zone

Thursday, November 27, 2014 - 01:56

ECB President Mario Draghi says the euro zone's economy needs a comprehensive strategy including reforms to get it back on track and can't be sorted by monetary policy alone. As Sonia Legg reports his warning comes as falling Spanish prices add to deflation pressures.

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Another warning sign for Europe - annual inflation in Germany in November fell to its lowest level in nearly five years.
At 0.5 percent it was less than expected - meaning the risk of deflation remains all too real.
The ECB is well aware of the problem - it's been trying to revive the economy by buying covered bonds and asset-backed securities.
But the weapon of full blown sovereign bond buying - or QE - hasn't yet been deployed.
ECB Vice President Vitor Constancio says it could be released early next year - but it's still only a "could be" not a "will be".
(SOUNDBITE) (English) ECB VICE PRESIDENT, VITOR CONSTANCIO, SAYING:
"We still believe that our polices now in place can do the job but we have to be monitoring the situation and assessing it in the proper way in order the ensure that in the time frame of our programmes which are now in place we can indeed achieve the objectives that we have."
The euro fell back under $1.25 on Germany's inflation news.
It came after ECB chief Mario Draghi called for a comprehensive strategy to put the euro back on track
He said monetary policy couldn't do all the "heavy lifting" - fiscal polices and structural reform were also essential.
Dominic Johnson from Somerset Capital Investment agrees.
(SOUNDBITE) (English) DOMINIC JOHNSON, SOMERSET CAPITAL MANAGEMENT, SAYING:
"You need labour market reform, a real freeing up of these economies and accessibility must be improved - otherwise you can print money and we'll all end up like Venezuela or Zimbabwe. You need strong political direction to bring these economies into the 21st century."
The ECB is also watching for price bubbles - particularly in the real estate and corporate bond markets.
And it says investor complacency and the search for returns could be problem.
So could failing to support each other - fears that anyone might quit the euro zone must not be revived, he said.

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